EX-99.1 2 ex991-q12018.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1
 
falconstorlogoa02.jpg

For more information, contact:
FalconStor Software, Inc.
Brad Wolfe
Chief Financial Officer
brad.wolfe@falconstor.com

FalconStor Software Announces First Quarter 2018 Results

MELVILLE, N.Y., May 10, 2018 — FalconStor Software, Inc. (OTCQB: FALC), a market leader in storage software, today announced financial results for its first quarter ended March 31, 2018.

“We are pleased with our Q1 performance and resultant financial results, which continued the return to profitability delivered in Q3 and Q4 of 2017” stated Todd Brooks, CEO of FalconStor. “Our products play a key role in efficiently managing and protecting critical data within enterprises around the world. Given our improved financial stability and continually improving operational efforts, our focus for the balance of 2018 will shift to further product innovation and strategic growth.”

Financial Overview:
 
Three Months Ended March 31,
 
 Change
Period to Period
(in millions except per share data)
2018
 
2017
 
Total revenue
$
5.0

 
100
%
 
$
6.0

 
100
 %
 
$
(1.0
)
 
(17
)%
Total cost of revenue
$
0.8

 
15
%
 
$
1.5

 
24
 %
 
$
(0.7
)
 
(48
)%
Total operating expenses
$
3.7

 
74
%
 
$
5.7

 
95
 %
 
$
(2.1
)
 
(36
)%
Operating income (loss) (GAAP)
$
0.6

 
11
%
 
$
(1.1
)
 
(19
)%
 
$
1.7

 
*

Net income (loss) (GAAP)
$
0.5

 
10
%
 
$
(1.1
)
 
(18
)%
 
$
1.6

 
*

Diluted EPS GAAP
$
(0.05
)
 
 
 
$
(0.03
)
 
 
 
$
(0.02
)
 
 

For the three months ended March 31, 2018 we delivered net GAAP operating income of $0.6 million on revenues of $5.0 million. Included in operating results above for the three months ended March 31, 2018 and 2017 were $0.0 million and $0.4 million of share-based compensation expense, respectively. 

Deferred revenue at March 31, 2018 was $13.1 million, compared with $18.4 million at December 31, 2017. The decrease is primarily related to our adoption of new revenue recognition accounting guidance on January 1, 2018 using the modified retrospective transition method applied to contracts which were not completed as of January 1, 2018. Our cash balance at March 31, 2018 was $4.6 million, compared with $1.0 million at December 31, 2017.
 
Three Months Ended,
(in millions except per share data)
March 31, 2018
 
December 31, 2017
 
March 31, 2017
Revenue
$
5.0

 
$
6.3

 
$
6.0

Bookings
$
5.0

 
$
5.7

 
$
5.5

Non-GAAP Expenses
$
4.6

 
$
4.7

 
$
7.0

Non-GAAP Gross Margin
85
%
 
83
%
 
77
%
Non-GAAP Operating Income (Loss)
$
0.4

 
$
1.5

 
$
(0.9
)
Non-GAAP Net Income (Loss)
$
0.3

 
$
1.5

 
$
(0.9
)
Non-GAAP Diluted EPS
$
—

 
$
0.03

 
$
(0.02
)
Cash (used in) provided by operations
$
1.2

 
$
(1.0
)
 
$
0.1


Non-GAAP results exclude the effects of stock-based compensation, restructuring costs and the effects of our Series A redeemable convertible preferred stock. A reconciliation between GAAP and non-GAAP information is provided on page 6 of this release.

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Conference Call                                
The Company will host a conference call to discuss its financial results on Thursday, May 10, 2018 at 4:30 p.m. EST. To participate in the conference call, please dial:

Toll Free: 1-800-263-0877


International: +1-323-794-2094


Conference ID: 5146016

To view the presentation, please copy and paste the following link into your browser and register for this meeting. Once you have registered for the meeting, you will receive an email message confirming your registration.

https://falconstor.webex.com/

Meeting: FalconStor Q1 2018 Earnings


Meeting Password: Q118meeting


Meeting Number: 794 483 353

A conference call replay will be available beginning May 10, 2018 at 6:30 p.m. CST through 6:30 p.m. CST on May 17, 2018. To listen to the replay of the call, dial: Toll Free: 1-888-203-1112; International: +1 719-457-0820; Passcode: 5146016

Non-GAAP Financial Measures
The non-GAAP financial measures used in this press release are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. The Company’s management refers to these non-GAAP financial measures in making operating decisions because they provide meaningful supplemental information regarding the Company’s operating performance. In addition, these non-GAAP financial measures facilitate management’s internal comparisons to the Company’s historical operating results and comparisons to competitors’ operating results. We include these non-GAAP financial measures (which should be viewed as a supplement to, and not a substitute for, their comparable GAAP measures) in this press release because we believe they are useful to investors in allowing for greater transparency into the supplemental information used by management in its financial and operational decision-making. The non-GAAP financial measures exclude (i) restructuring costs, (ii) effects of our Series A redeemable convertible preferred stock, and (iii) non-cash stock-based compensation charges and any potential tax effects. For a reconciliation of our GAAP and non-GAAP financial results, please refer to our Non-GAAP Operating Data GAAP Reconciliation, presented in this release.

About FalconStor Software
FalconStor Software, Inc. (OTCQB: FALC) is a leading storage software company offering a converged data services software platform that is hardware agnostic. Our open, integrated flagship solution FreeStor® reduces vendor lock-in and gives enterprises the freedom to choose the applications and hardware components that make the best sense for their business. We empower organizations to modernize their data center with the right performance, in the right location, all while protecting existing investments. FalconStor’s mission is to maximize data availability and system uptime to ensure nonstop business productivity while simplifying data management to reduce operational costs. Our award-winning solutions are available and supported worldwide by OEMs as well as leading service providers, system integrators, resellers and FalconStor. The Company is headquartered in Melville, N.Y. with offices throughout Europe and the Asia Pacific region. For more information, visit www.falconstor.com or call 1-866-NOW-FALC (866-669-3252). 

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# # #

This press release includes forward-looking statements that involve risk and uncertainties that could cause actual results to differ materially from the forward-looking statements. These risks and uncertainties include: delays in product development; market acceptance of FalconStor’s products and services; technological change in the data protection industry; competition in the data protection market; results and costs associated with governmental investigations; intellectual property issues; and other risk factors discussed in FalconStor’s reports on Forms 10-K, 10-Q and other reports filed with the Securities and Exchange Commission.
 
FalconStor, FalconStor Software, FreeStor and Intelligent Abstraction are trademarks or registered trademarks of FalconStor Software, Inc., in the U.S. and other countries. All other company and product names contained herein may be trademarks of their respective holders.
 

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Links to websites or pages controlled by parties other than FalconStor are provided for the reader’s convenience and information only. FalconStor does not incorporate into this release the information found at those links nor does FalconStor represent or warrant that any information found at those links is complete or accurate.  Use of information obtained by following these links is at the reader’s own risk.

3


FalconStor Software, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
 
March 31, 2018
 
December 31, 2017
 
 
(unaudited)
 
 
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
4,563,260

 
$
1,011,472

Accounts receivable, net
 
3,118,556

 
4,168,015

Prepaid expenses and other current assets
 
1,415,950

 
1,244,494

Contract assets, net
 
1,624,533

 
—

Total current assets
 
10,722,299

 
6,423,981

Property and equipment, net
 
557,799

 
636,112

Deferred tax assets, net
 
618,078

 
590,977

Software development costs, net
 
236,991

 
279,414

Other assets, net
 
966,867

 
992,760

Goodwill
 
4,150,339

 
4,150,339

Other intangible assets, net
 
134,628

 
141,631

Contract assets
 
$
1,786,369

 
$
—

 Total assets
 
$
19,173,370

 
$
13,215,214

Liabilities and Stockholders' Deficit
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
1,271,429

 
$
1,092,864

Accrued expenses
 
2,622,150

 
4,376,235

Short-term loan, net of debt issuance costs and discounts
 
—

 
370,151

Deferred revenue, net
 
7,391,371

 
11,760,327

Total current liabilities
 
11,284,950

 
17,599,577

Other long-term liabilities
 
1,140,671

 
1,154,512

Notes payable, net
 
2,468,696

 
—

Warrant liability
 
4,143,000

 
—

Deferred tax liabilities, net
 
85,559

 
85,559

Deferred revenue, net
 
5,748,448

 
6,600,363

Total liabilities
 
24,871,324

 
25,440,011

Commitments and contingencies
 
 

 
 

Series A redeemable convertible preferred stock
 
8,747,789

 
9,000,000

Total stockholders' deficit
 
(14,445,743
)
 
(21,224,797
)
Total liabilities and stockholders' deficit
 
$
19,173,370

 
$
13,215,214



4


FalconStor Software, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) 

 
 
Three Months Ended March 31,
 
 
2018
 
2017
Revenue:
 
 
 
 
Product revenue
 
$
1,933,944

 
$
1,921,052

Support and services revenue
 
3,060,005

 
4,118,063

Total revenue
 
4,993,949

 
6,039,115

Cost of revenue:
 
 

 
 

Product
 
26,150

 
198,715

Support and service
 
728,888

 
1,253,916

Total cost of revenue
 
755,038

 
1,452,631

Gross profit
 
$
4,238,911

 
$
4,586,484

Operating expenses:
 
 

 
 

Research and development costs
 
1,004,698

 
2,294,863

Selling and marketing
 
1,193,550

 
2,050,542

General and administrative
 
1,654,940

 
1,621,551

Restructuring costs (benefit)
 
(173,263
)
 
(236,302
)
Total operating expenses
 
3,679,925

 
5,730,654

Operating income (loss)
 
558,986

 
(1,144,170
)
Interest and other income (loss), net
 
10,330

 
154,921

Income (Loss) before income taxes
 
569,316

 
(989,249
)
Provision for income taxes
 
62,439

 
122,948

Net income (loss)
 
$
506,877

 
$
(1,112,197
)
Less: Accrual of Series A redeemable convertible preferred stock dividends
 
243,167

 
204,575

Less: Deemed dividend on Series A redeemable convertible preferred stock
 
2,269,042

 
—

Less: Accretion to redemption value of Series A redeemable convertible preferred stock
 
38,105

 
—

Net loss attributable to common stockholders
 
$
(2,043,437
)
 
$
(1,316,772
)
Basic net loss per share attributable to common stockholders
 
$
(0.05
)
 
$
(0.03
)
Diluted net loss per share attributable to common stockholders
 
$
(0.05
)
 
$
(0.03
)
Weighted average basic shares outstanding
 
44,564,094

 
44,088,352

Weighted average diluted shares outstanding
 
44,564,094

 
44,088,352


5


FalconStor Software, Inc. and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures
(Unaudited) 
 
 
Three Months Ended March 31,
 
 
2018
 
2017
GAAP income (loss) from operations
 
$
558,986

 
$
(1,144,170
)
Non-cash stock option expense (1)
 
(22,895
)
 
445,414

Restructuring costs (3)
 
(173,263
)
 
(236,302
)
Non-GAAP income (loss) from operations
 
$
362,828

 
$
(935,058
)
 
 
 
 
 
GAAP net loss attributable to common stockholders
 
$
(2,043,437
)
 
$
(1,316,772
)
Non-cash stock option expense, net of income taxes (2)
 
(22,895
)
 
445,414

Restructuring costs (3)
 
(173,263
)
 
(236,302
)
Effects of Series A redeemable convertible preferred stock (4)
 
2,550,314

 
204,575

Non-GAAP net income (loss) attributable to common stockholders
 
$
310,719

 
$
(903,085
)
 
 
 
 
 
GAAP gross margin
 
85
 %
 
76
 %
Non-cash stock option expense (1)
 
0
 %
 
1
 %
Non-GAAP gross margin
 
85
 %
 
77
 %
 
 
 
 
 
GAAP gross margin - Product
 
99
 %
 
90
 %
Non-cash stock option expense (1)
 
0
 %
 
0
 %
Non-GAAP gross margin - Product
 
99
 %
 
90
 %
 
 
 
 
 
GAAP gross margin - Support and Service
 
76
 %
 
70
 %
Non-cash stock option expense (1)
 
0
 %
 
1
 %
Non-GAAP gross margin - Support and Service
 
76
 %
 
71
 %
 
 
 
 
 
GAAP operating margin
 
11
%
 
(19
%)
Non-cash stock option expense (1)
 
0
%
 
7
%
Restructuring costs (3)
 
(3
%)
 
(4
%)
Non-GAAP operating margin
 
8
%
 
(16
%)
 
 
 
 
 
GAAP Basic EPS
 
$
(0.05
)
 
$
(0.03
)
Non-cash stock option expense, net of income taxes (2)
 
0.00

 
0.01

Restructuring costs (3)
 
0.00

 
0.00

Effects of Series A redeemable convertible preferred stock (4)
 
0.06

 
0.00

Non-GAAP Basic EPS
 
$
0.01

 
$
(0.02
)
 
 
 
 
 
GAAP Diluted EPS
 
$
(0.05
)
 
$
(0.03
)
Non-cash stock option expense, net of income taxes (2)
 
0.00

 
0.01

Restructuring costs (3)
 
0.00

 
0.00

Effects of Series A redeemable convertible preferred stock (4)
 
0.05

 
0.00

Non-GAAP Diluted EPS
 
$
0.00

 
$
(0.02
)
 
 
 
 
 
Weighted average basic shares outstanding (GAAP and as adjusted)
 
44,564,094

 
44,088,352

Weighted average diluted shares outstanding (GAAP)
 
44,564,094

 
44,088,352

Weighted average diluted shares outstanding (Non-GAAP)
 
261,370,198

 
44,088,352



6


Footnotes:
(1)
Represents non-cash, stock-based compensation charges as follows:
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Cost of revenue - Product
 
$
—

 
$
—

Cost of revenue - Support and Service
 
8,700

 
56,451

Research and development costs
 
22,606

 
129,715

Selling and marketing
 
7,932

 
56,540

General and administrative
 
(62,133
)
 
202,708

Total non-cash stock based compensation expense
 
$
(22,895
)
 
$
445,414

 
(2)
Represents the effects of non-cash stock-based compensation expense recognized, net of related income tax effects. For the three months ended March 31, 2018 and 2017, the tax expense for both GAAP and Non-GAAP basis approximate the same amount.

(3)
Represents restructuring costs which were incurred during each respective period presented.

(4)
Represents the effects of the accretion to redemption value of the Series A redeemable convertible preferred stock, accrual of Series A redeemable convertible preferred stock dividends and deemed dividend on Series A redeemable convertible preferred stock.

7